Federal budget too soon for pension reform, experts say

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OTTAWA - The March 4 federal budget is not the time to expect Ottawa to take a bold stand on pension reform, say experts and government insiders.
But it does give the Harper government an opportunity to improve the existing system, they add.
As public angst about retirement savings grows, the Liberals and NDP are urging Finance Minister Jim Flaherty to make a decision and surge forward with reform of the Canada Pension Plan. Both parties want to see the CPP used as a base to help Canadians maintain their standard of living in retirement.
The opposition parties see pension adequacy as a key wedge issue in any coming election. They plan to make hay out of the fact that the Conservatives have spent a year doing research and consultations on a well-documented problem, but have taken few concrete steps.
They feel the pension issue appeals to the middle-class vote, and to seniors, who are considered highly reliable on election day.
"The government must act to address the pensions crisis," NDP finance critic Thomas Mulcair wrote in a pre-budget letter to Flaherty.
Sources say the Conservatives feel the pressure to take action. But the government has already committed to working with the provinces on a joint solution that will postpone any grand pronouncement until at least May. And going it alone without the provinces is not an option for any kind of major undertaking.
Plus, there is no consensus among provincial governments - or even within the federal government itself - about the best direction to take. Federal officials don't plan to turn their attention to pension issues until they've got the budget published and well underway.
"I don't think we're there yet," said Jack Mintz, a University of Calgary economist who is central in advising federal and provincial governments on the issue.
While some provinces seem to favour adding a voluntary layer of supplemental benefits to the CPP, not every province has come that far in its thinking.
And while Ontario has done its research, it is reluctant to push anything that could be perceived as a new payroll tax at a time when the provincial economy is still struggling with recession and a pending increase in consumption taxes.
So experts are urging Ottawa to take interim steps that would calm some of the public anxiety on the pension issue, but wouldn't break the bank.
Last week, the C.D. Howe Institute listed reforms that Ottawa could make without involving provincial governments - changes such as raising contribution limits for retirement savings plans, and improving the tax treatment of individuals' retirement savings to put them on the same level as corporate pension plans.
Such adjustments would be an easy first step to take while the larger issues are being dealt with, said Bill Robson, the institute's president.
Now, Mintz is suggesting changes to the Tax Free Savings Account limits, but only for people over the age of 60. That way, the foregone revenue for Ottawa is minimal, but a key group of people would have an incentive to boost savings just before retiring. It would also strengthen the TFSA plan which is a favourite among Conservatives.
Mintz said federal and provincial governments agree that the key to resolving retirement income problems revolves around finding ways to increase the savings of lower middle-class people that have few assets. But there is still a lack of research on how that group of people accumulates wealth, not to mention solutions of how to make sure they save more, he added.
Raising the savings limits in RRSPs or TFSAs doesn't do much for the people who need to boost their savings the most, experts agree.
That's why labour groups and the NDP are pushing for an increase in the Guaranteed Income Supplement - a federal benefit for seniors, geared to income. They argue that for less than $1 billion a year, the federal government could eradicate poverty among seniors.
But government insiders suggest an increase to GIS is too expensive right now.
As for the Liberals, they don't really expect any major moves on pensions in time for the budget, but they do anticipate an acknowledgment that action is pending, said finance critic John McCallum.
"I think a test ... is whether they have it in the Throne Speech" on March 3, he said.

Organizations: NDP, Conservatives, University of Calgary C.D. Howe Institute

Geographic location: OTTAWA, Ontario

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